A Fresh Look at the 2018 Barron’s Roundtable’s Worst Stock Picks

Picking winning stocks is no easy thing, even for savvy, seasoned investors like the members of the Barron’s Roundtable. For proof, look no further than the dismal performance of some of their 2018 recommendations, detailed in the report card published with this year’s first Roundtable installment. While the S&P 500 returned a negative 8.6% in the time period measured (Jan. 5, 2018, through year end), certain of our panelists’ best bets fared far worse. In the case of stocks down 20% or more, we asked for an explanation of what went wrong and an assessment of the current outlook. Here are panelists’ responses.

Source: Bloomberg

Scott Black: Lam Research
[ticker: LRCX] is a semiconductor-equipment maker. There was a major slowdown worldwide last year in memory, and in the September quarter Lam posted its first down quarter year over year in several years. In the short term, earnings momentum is down, but I expect wafer fabrication to ramp up again in 2020. Lam is expected to earn $14.50 a share in the fiscal year ending in June, and $16.75 to $17 in fiscal 2020. The company has $9.20 a share in net cash and equivalents on its balance sheet. We still own the stock.

Source: Bloomberg

Hi-Crush Partners
[HCLP] supplies [hydraulic fracturing] sand used in oil and gas production. The company operated in Wisconsin and then moved into the Permian Basin [an oil-producing region primarily in Texas]. Unfortunately, there isn’t enough [pipeline] infrastructure right now to take oil and gas out of the Permian. Also, the sharp decline in oil prices has hurt. We sold the stock during the year. At $3-$4 a share, however, you could put it away and forget about it for a while. Fracking isn’t going away, and Hi-Crush is the low-cost producer.

Source: Bloomberg

Hooker Furniture
[HOFT] is an excellent company. It did exactly what it said it would do last year, and earnings went up for three straight quarters. What killed the stock was China. The company acquired Home Meridian International in 2016, which boosted earnings. But 90% of Meridian’s merchandise for sale was sourced in China. The stock fell on fears of a reciprocal tariff war. We still own it.

*Reflects 50-for-1 stock split 5/3/18

Source: Bloomberg

Abby Joseph Cohen: Samsung Electronics
[005930.Korea] was 2018’s
Apple
[AAPL]. The company is a category leader in technology and sold lots of electronic components into China. But the Chinese are now finding local suppliers, and consumers have switched to Chinese-branded products like smartphones. In some ways Samsung was the canary in the coal mine: a major international company that ran into problems because of a change in the way they were viewed in China. The stock is much cheaper now than a year ago, but there are some questions about growth in smartphones and global inventory levels in semiconductors.

Source: Bloomberg

Henry Ellenbogen: We still like
Equifax
[EFX]. There were several issues with the stock in 2018. Their international credit business was a little weaker than expected, primarily from a foreign-exchange standpoint. In the U.S., the growth in the traditional credit business has been an issue; partially, they were put in the customer penalty box because of the 2017 data breach, and there was a lack of investment in their technology platform. As a result, revenue in the division didn’t grow, whereas rival
TransUnion
[TRU] grew 8%-9%. The workplace-solutions business had a very good year, up close to 8%. But overall they missed numbers by about 3%-4%. Also, a new CEO didn’t take the opportunity to reset expectations.

Finally, there was some concern about Equifax’s end markets—in particular, cyclicality in real estate. As we see it, valuations are close to a trough, much of the real-estate weakness has already occurred, and the industry has gotten higher-quality over time.

Source: Bloomberg

Mario Gabelli:GCP Applied Technologies
[GCP] is a producer of cement, concrete additives, and weatherproofing, mostly for commercial construction. It still benefits from the overall construction environment. Furthermore, Swiss-based Sika [SIKA.Switzerland] is acquiring France’s Parex, and its CEO mentioned the company’s intention to participate in the industry consolidation. As a small player, GCP is a potential target. The stock has f allen from $33 to $25 and I am a buyer.

Source: Bloomberg

I’m a buyer of
Textron
[TXT] at $46. The long cycle in business jets will continue with new models being introduced, and Textron is continuing to gradually take share. The Future Vertical Lift opportunity [to develop a family of military helicopters for the U.S. Armed Forces] could be worth well into the billions, although selection might not be until 2023. The company has excellent management.

Source: Bloomberg

William Priest: After tripling in 2017,
Universal Display
[OLED] underperformed in 2018. Smartphone shipments slowed, and Apple’s iPhone X sold well but less well than expected. In addition, an inventory pre-buy by Universal Display’s largest customer in 2017 pulled demand forward from 2018. OLED [organic light-emitting diode] demand continues to grow, and 2019 could see the announcement of a blue OLED, which will launch a significant new product cycle for the company that isn’t embedded in the market forecasts. The long-term outlook is excellent.

Source: Bloomberg

After a strong 2017,
Applied Materials
[AMAT] underperformed in 2018 due to a slowdown in semiconductor-equipment capex [capital expenditure], coupled with China tariffs and a selloff in cyclical sectors. The multiple on semiconductor-equipment stocks fell from the low teens to the single digits. We believe that equipment capex will decline only modestly and the shares will rebound as soon as that becomes apparent to investors.

Source: Bloomberg

While
Martin Marietta Materials
’ [MLM] total return in 2018 was -23.7%, the S&P 500 Materials sector’s total return was -18%, resulting in Martin Marietta realizing a 5.7% relative sector underperformance. The primary drivers were weather and Ebitda [earnings before interest, taxes, depreciation, and amortization] multiple contraction. Heavy August rainfall in Texas, followed by the September drenching from hurricane Florence in South Carolina, resulted in a reduction in the outlook for 2018 Ebitda, and the stock followed suit. Furthermore, Martin Marietta started 2018 with a next-12-month Ebitda multiple of 14 times, and by year end it was 11 times. We still own the shares, and believe the risk/reward is attractive at current levels.

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